The Rich Get Richer: Can We Unwind the Trend?

Link to Economic Policy Institute.

The chart above identifies the cause of one of the most pressing political agendas to be addressed by the U.S. Democratic administration. It reflects the extent to which the rich have gotten richer, and the poor have gotten poorer over the past forty years. The middle class of America has been hollowed out. It should be noted that most economists believe that it is the middle class, not the top 1%, that drive economic growth.

This problem is not exclusive to the United States but has permeated to varying degrees, across all developed countries. It is difficult to name one cause for the proportional shift in the economic benefits of production from labour to owners. The declining power of unions is likely a contributing factor, as have been globalization and technological change. Some would add the low interest rate environment to that list, as lower interest rates have encouraged owners to make capital expenditures that improve productivity and reduce the role of labour in the creation of economic outputs.

With owners now reaping an increasingly larger share of the value of economic gains, this impact has been magnified by lower corporate tax rates.

Defining government policy to reverse this trend is a challenge. In the last forty years, the rate of productivity gains, which are critical to economic growth, have averaged just over half of the gains in the thirty years prior. No administration wishes to put into place, policies that will further slow this key factor in economic growth. However, the social problems related to this growing disparity cannot be dismissed.

The current U.S. administration appears to be trying to address this through a combination of both tax and spend measures. Taxing billionaires has grown increasingly palatable to many, particularly as new data shows that many of the wealthiest individuals pay little tax, and multi-national organizations, particularly big tech companies, are known to shuffle their income to low-tax jurisdictions.

This is then to be combined with large infrastructure spending which not only includes traditional projects such as roads and bridges, but a heavy investment in education. The goal is to create middle class jobs for today while also building a population prepared for the jobs of the future.

We hope these policies are successful, as rising median incomes is a benefit to everyone.


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